AUDIT REPORT
ALLIANCE COMMUNITY HOSPITAL
SPECIAL PURPOSE GRANTS
ALLIANCE, OHIO
2001-CH-1006
MAY 3, 2001
OFFICE OF AUDIT, MIDWEST
CHICAGO, ILLINOIS
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Issue Date
May 3, 2001
Audit Case Number
2001-CH-1006
TO: Preston A. Pace, Jr., Director of Columbus Multifamily Hub, Ohio State Office
/signed/
FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest
SUBJECT: Alliance Community Hospital
Special Purpose Grants
Alliance, Ohio
We completed an audit of three Special Purpose Grants awarded to the Alliance Community Hospital.
The three Grants were: OH12-SPG-32 for $1,250,000; OH12-SPG-509 for $1,500,000; and OH12-
SPG-517 for $500,000. The audit was conducted in response to a request from HUD’s Director of
the Cleveland Multifamily Program Center. The objectives of our audit were to determine whether: the
Special Purpose Grants funds were used efficiently and effectively; and the Hospital complied with the
terms of the Grant Agreements.
The Hospital generally administered two of the three Special Purpose Grants (OH12-SPG-32 and
OH12-SPG-509) correctly. However, the Hospital did not use funds from Special Purpose Grant
OH12-SPG-517 efficiently and effectively and failed to comply with the Grant Agreement. Specifically,
the Hospital: improperly used $6,065 in Grant funds to pay part of two employees’ salaries and fringe
benefits for time they spent working on non-Grant activities; used $5,490 in Grant funds to pay an
employee’s salary and fringe benefits without supporting documentation; and used $87,883 in Grant
funds to pay the salary and fringe benefits expenses of the Hospital’s Vice President of Strategic
Management but the expenses were not permitted by the Grant Agreement.
We also found that the Hospital: received $21,035 in program income from businesses participating in
its Corporate Health Alliance activity funded by Special Purpose Grant OH12-SPG-517 but the
income was not used to support the Grant; failed to use sound management principles when it did not
charge itself for $10,989 in Grant services provided to its employees; and used $8,926 in Grant funds
for: public relations items that did not specifically promote its Grant activities, and training and travel
expenses for individuals that were not employed by the Hospital.
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Management Memorandum
Within 60 days, please provide us, for each recommendation made in this report, a status report on: (1)
the corrective action taken; (2) the proposed corrective action and the date to be completed; or (3)
why action is considered unnecessary. Also, please furnish us copies of any correspondence or
directives issued because of the audit.
Should you or your staff have any questions, please have them contact me at (312) 353-7832 or Heath
Wolfe, Assistant District Inspector General for Audit, at (312) 353-6236 extension 2677.
2001-CH-1006 Page ii
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Executive Summary
We completed an audit of three Special Purpose Grants awarded to the Alliance Community Hospital.
The three Grants were: OH12-SPG-32 for $1,250,000; OH12-SPG-509 for $1,500,000; and OH12-
SPG-517 for $500,000. The objectives of our audit were to determine whether: the Special Purpose
Grants funds were used efficiently and effectively; and the Hospital complied with the terms of the Grant
Agreements. The audit was conducted in response to a request from HUD’s Director of the Cleveland
Multifamily Program Center.
The Hospital generally administered two of the three Special Purpose Grants (OH12-SPG-32 and
OH12-SPG-509) correctly. However, the Hospital did not use funds from Special Purpose Grant
OH12-SPG-517 efficiently and effectively and failed to comply with the Grant Agreement.
The Hospital did not follow Special Purpose Grant Agreement
The Hospital Improperly OH12-SPG-517, HUD’s regulation, and/or Office and
Used Grant Funds To Pay Management Budget Circular A-87 when it used Grant funds to
Personnel Expenses pay employees’ salaries and fringe benefits. Specifically, the
Hospital improperly used $6,065 in Grant funds to pay part of
two employees’ salaries and fringe benefits for time they spent
working on non-Grant activities. Additionally, the Hospital
used $5,490 in Grant funds to pay an employee’s salary and
fringe benefits without supporting documentation. The Hospital
did not maintain periodic certifications that the employee
worked solely on Grant activities, or personnel activity reports
to support whether the employee’s time was spent on Grant or
non-Grant activities. The Hospital also used $87,883 in Grant
funds to pay the Vice President of Strategic Management’s
salary and fringe benefits that were not permitted by the Grant
Agreement.
The Hospital did not follow Special Purpose Grant Agreement
The Hospital Did Not OH12-SPG-517 and HUD’s regulation to ensure that income
Ensure That $21,035 In directly generated by the Grant was used to support other
Program Income Supported Grant activities. The Hospital provided health care services to
The Grant’s Activities businesses participating in its Corporate Health Alliance activity
that was funded by the Special Purpose Grant. Between
January 1997 and January 1998, the Hospital received
$21,035 in program income from the businesses that was not
used to support the Grant.
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Executive Summary
Contrary to Special Purpose Grant Agreement OH12-SPG-
The Hospital Did Not 517 and Office of Management and Budget Circular A-87, the
Charge For $10,989 In Hospital failed to use sound management principles when it did
Grant Services not charge itself for Grant services provided to its employees.
The Hospital provided $10,989 in health care services to its
employees and members of the Hospital’s Wellness Center for
Women that participated in the Corporate Health Alliance
activity funded by the Special Purpose Grant. However, the
Hospital did not charge for the services.
Contrary to Special Purpose Grant Agreement OH12-SPG-
The Hospital’s Use Of 517 and Office of Management and Budget Circular A-87, the
Special Purpose Grant Hospital used $8,926 in Grant funds for: public relations items
Funds Did Not Support Its that did not specifically promote its Grant activities, and training
Grant Activities and travel expenses for individuals that were not employed by
the Hospital.
We recommend that HUD’s Director of the Columbus
Recommendations Multifamily Hub, Ohio State Office, require the Hospital to
reimburse the Special Purpose Grant OH12-SPG-517 for the
questioned disbursements and program income, and assure that
the Hospital implements procedures and controls to correct the
weaknesses cited in this report.
We presented our draft findings to the Hospital’s Chief
Financial Officer and HUD’s staff during the audit. The
Hospital’s Chief Executive Officer declined our offer for an exit
conference; however, the Chief Financial Officer did provide
written comments to the draft findings. The Hospital agreed to
reimburse the Special Purpose Grant OH12-SPG-517 for the
improper use of Grant funds to pay personnel expenses, public
relations items, training and travel expenses, and for the
program income that was not used to support other Grant
activities. The Hospital also agreed to implement procedures
and controls to ensure that it follows Special Purpose Grant
Agreement OH12-SPG-517, HUD’s regulations, and/or Office
of Management and Budget Circular A-87 regarding the use of
Grant funds. The Hospital made no comment to reimburse the
Special Purpose Grant OH12-SPG-517 for the $10,989 in
Grant services that were provided to the Hospital’s employees,
but was not charged.
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Executive Summary
We included paraphrased excerpts of the Hospital’s comments
with each finding. The complete text of the comments is in
Appendix B.
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Table Of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The Hospital Improperly Used Grant Funds To Pay
Personnel Expenses 3
2 The Hospital Did Not Ensure That $21,035 In Program
Income Supported The Grant’s Activities 9
3 The Hospital Did Not Charge For $10,989 In Grant
Services 13
4 The Hospital’s Use Of Special Purpose Grant Funds
Did Not Support Its Grant Activities 17
Management Controls 21
Follow Up On Prior Audits 25
Appendices
A Schedule Of Questioned Costs 27
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B Auditee Comments 29
C Distribution 33
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Introduction
HUD awarded the Alliance Community Hospital three Special Purpose Grants between January 1993
and December 1994. The three Grants were: OH12-SPG-32 for $1,250,000; OH12-SPG-509 for
$1,500,000; and OH12-SPG-517 for $500,000. As of March 20, 2001, the Hospital used all the
Grant funds from OH12-SPG-32 and OH12-SPG-517, and the Hospital expended $215,148 in Grant
funds from OH12-SPG-509.
The OH12-SPG-32 Grant was awarded to pay for construction costs to connect the Hospital’s main
building to an extended care facility operated by the Hospital. Additionally, the Hospital was to use the
Grant funds to purchase 11 ventilator units to assist patients residing in the facility. The Hospital
completed the construction work and the purchase of the ventilator units in 1995.
HUD awarded the OH12-SPG-509 Grant to the Hospital to purchase land and construct an assisted
living center for elderly individuals. The center is expected to include 25 to 35 units that will
accommodate 25 to 42 elderly individuals. As of February 2001, the Hospital had completed the
purchase of the land; however, construction work had not started on the center.
The OH12-SPG-517 Grant was awarded to the Hospital to establish a Corporate Health Alliance
activity to address heart disease, cancer, and stroke among area residents. The Hospital planned to
assist 12,500 residents through the activity. The Hospital continued to fund the activity after all of the
Grant funds were used.
The Hospital was incorporated under the laws of the State of Ohio in October 1946. The Hospital is
governed by a 22 member Board of Trustees. Stan W. Jonas is the Chief Executive Officer. The
Hospital’s official records for the Grants are located at 264 East Rice Street, Alliance, Ohio.
The audit objectives were to determine whether: the Special
Audit Objectives Purpose Grants funds were used efficiently and effectively; and
the Hospital complied with the terms of the Grant Agreements.
We conducted the audit at HUD’s Cleveland Area Office and
Audit Scope And the Hospital’s office. We performed our on-site audit work
Methodology between November 2000 and March 2001.
To determine whether the Hospital used its Special Purpose
Grants funds efficiently and effectively and complied with the
terms of the Grant Agreements, we interviewed HUD’s staff
and the Hospital’s current and formeremployees. We analyzed
the following items: Grants files; cash receipts, disbursements,
and general ledgers; vendor invoices and contracts; employee
payroll records and job descriptions; equipment records; and
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Introduction
audited financial statements. We also reviewed: HUD’s files for
the Hospital; the Special Purpose Grant Agreements (OH12-
SPG-32, OH12-SPG-509, and OH12-SPG-517) between
HUD and the Hospital; Part 84 of Title 24 of the Code of
Federal Regulations, Grants and Agreements with Institutions of
Higher Education, Hospitals, and other Non-Profit
Organizations; Office of Management and Budget Circular A-
87; HUD’s Appropriations Act for 1995; and the House of
Representatives Conference Reports 102-226 and 103-715.
The audit covered the period from May 1, 1995 to October
31, 2000. This period was adjusted as necessary. We
conducted the audit in accordance with generally accepted
government auditing standards.
We provided a copy of this report to the Hospital's Chief
Executive Officer.
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Finding 1
The Hospital Improperly Used Grant Funds To
Pay Personnel Expenses
The Alliance Community Hospital did not follow Special Purpose Grant Agreement OH12-SPG-517,
HUD’s regulation, and/or Office and Management Budget Circular A-87 when it used Grant funds to
pay employees’ salaries and fringe benefits. Specifically, the Hospital improperly used $6,065 in Grant
funds to pay part of two employees’ salaries and fringe benefits for time they spent working on non-
Grant activities. Additionally, the Hospital used $5,490 in Grant funds to pay an employee’s salary and
fringe benefits without supporting documentation. The Hospital did not maintain periodic certifications
that the employee worked solely on Grant activities, or personnel activity reports to support whether the
employee’s time was spent on Grant or non-Grant activities. The Hospital also used $87,883 in Grant
funds to pay the Vice President of Strategic Management’s salary and fringe benefits that were not
permitted by the Grant Agreement. The Hospital did not have sufficient procedures and controls over
the Special Purpose Grant to ensure funds were used properly. As a result, HUD funds were not used
effectively and efficiently.
Article I, paragraph E, of Special Purpose Grant Agreement
Federal Requirements OH12-SPG-517, between HUD and the Alliance Community
Hospital, required the Hospital to follow the requirements of
Office of Management and Budget Circular A-87, Cost
Principles for State, Local, and Indian Tribal Governments.
Paragraph I of the Agreement required the Hospital to follow
other applicable regulations, such as 24 CFR Part 84, Grants
and Agreements with Institutions of Higher Education,
Hospitals, and other Non-Profit Organizations.
Office of Management and Budget Circular A-87,Attachment
A, paragraph C(1)(a), requires that all costs must be necessary
and reasonable for proper and efficient administration of
Federal Awards. In addition, paragraph C(1)(j) requires all
costs to be documented. Attachment B(11)(h)(3) of the
Circular says where employees are expected to work solely on
a single Federal award, charges for their wages will be
supported by periodic certifications that the employees worked
solely on that program for the period covered by the
certification. Paragraph (4) states where employees work on
multiple activities, a distribution of their wages will be supported
by personnel activity reports or equivalent documentation.
Such documentary support will be required where employees
work on a Federal award and a non-Federal award.
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Finding 1
24 CFR Part 84.25(b) requires grant recipients to report
deviations from budget and program plans, and request prior
approval for budget and program revisions. Part 84.25(c)(2)
states that for non-construction awards, grant recipients will
request prior approvals from HUD for a change in a key person
specified in the application or award document.
Contrary to Office of Management and Budget Circular A-87,
The Hospital Lacked the Alliance Community Hospital used Special Purpose Grant
Documentation To Support funds to pay employees’ salaries and fringe benefits without
Personnel Expenses supporting documentation.
In 1994, HUD awarded a $500,000 Special Purpose Grant to
the Alliance Community Hospital. The Grant was awarded to
establish a Corporate Health Alliance to address heart disease,
cancer, and stroke prevention among industrial workers. The
Hospital used part of the Grant funds to pay for its employees’
salaries and fringe benefits to carry out the Grant’s activities.
The Hospital lacked documentation to support employees’
salaries and fringe benefits charged to the Special Purpose
Grant between December 1995 and August 1998. The
Hospital did not maintain periodic certifications to verify that
employees worked solely on the Grant’s activities as required
by the Grant Agreement and Office of Management and Budget
Circular A-87. The Hospital used a total of $185,948 in Grant
funds to pay 100 percent of the salaries and benefits of its
Wellness Services Directors, Coordinators, and a Program
Assistant.
To determine the amount of time the Hospital’s employees
spent working on the Special Purpose Grant, we interviewed
the employees and reviewed their position descriptions when
possible. For the employees that we were unable to interview,
we reviewed their position description when available to
determine the amount of time they worked on the Grant.
The position description for the Hospital’s former and current
Wellness Services Directors showed that the Directors’ duties
were limited to the Special Purpose Grant. However, the
Directors said they spent approximately 10 percent of their time
working on non-Grant activities such as attending the Hospital’s
management meetings. Using the Directors’ estimates, we
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Finding 1
determined that the Hospital overcharged the Grant $6,065 to
pay the Directors’ salaries and fringe benefits.
The current Coordinator for the Hospital said she spent all of
her time working on the Special Purpose Grant’s activities.
This was supported by the Coordinator’s position description
that showed her duties were limited to the Grant. Based upon
the Coordinator’s statement and her position description, we
determined that the Hospital’s use of Grant funds to pay the
Coordinator’s salary and fringe benefits was proper.
The former Coordinator and the former Program Assistant
were no longer employed by the Hospital; therefore, we were
unable to ask them how much time they spent working on non-
Grant activities. The position description for the former
Coordinator showed that her duties were limited to the Grant.
Therefore, we did not question the Hospital’s use of Grant
funds to pay the former Coordinator’s salary and fringe
benefits. The Hospital lacked a position description to detail
the duties of the former Program Assistant. As a result, we
questioned the Hospital’s use of $5,490 in Special Purpose
Grant funds to pay the Assistant’s salary and fringe benefits.
The Hospital’s former Vice President of Strategic Management
said he was not aware that the Grant Agreement required the
Hospital to comply with Office of Management and Budget
Circular A-87 and maintain timesheets or other payroll
documentation to support personnel expenses charged to the
Grant. As a result, HUD lacks assurance that the salaries and
fringe benefits paid by the Special Purpose Grant were
reasonable and necessary expenses.
The Hospital used $87,883 in Special Purpose Grant funds to
The Hospital Improperly pay 100 percent of one employee’s salary and fringe benefits
Used Grant Funds To Pay even though the employee was not included in the Special
An Employee Purpose Grant Agreement. The funds were used to pay the
Hospital’s former Vice President of Strategic Management.
The position was not included in the Agreement’s budget.
The former Vice President of Strategic Management was
responsible for providing management direction over the
Hospital’s marketing/sales staff, public relations employees, and
the employees for the Special Purpose Grant. He estimated
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Finding 1
that he spent 50 percent of his time on non-Grant activities.
The former Vice President said it was necessary to reallocate
funds to pay his salary and fringe benefits in order to meet the
needs of the Grant. According to the former Vice President, he
was not aware that a revision request to HUD was required
before deviating from the Grant’s approved budget.
HUD’s Director of the Cleveland Multifamily Program Center
said his Office would not have approved a budget revision if
requested by the Hospital. He said the additional personnel
expenses to administer the Special Purpose Grant were
excessive. As a result, HUD funds were not effectively and
efficiently used.
Auditee Comments [Excerpts paraphrased from the Hospital’s comments on our
draft finding follow. Appendix B, page 29, contains the
complete text of the comments for this finding.]
The Hospital agrees that periodic certifications and appropriate
time studies to support the employee’s time spent on Grant
activities were not maintained. The dollar amounts of $6,065,
$5,490, and $87,883 will be reimbursed directly to the Special
Purpose Grant. For subsequent periods, time studies/periodic
certifications will be required for all personnel related to Grant
activities. These support documents will be completed on a
quarterly basis for two weeks each quarter. The addition of a
Compliance Officer along with other procedures will safeguard
the proper use of Grant funds.
OIG Evaluation Of The Hospital needs to assure that the procedures it plans to
Auditee Comments establish will ensure that its controls over the use of Special
Purpose Grant funds for personnel expenses meet the Grant
Agreement, HUD’s regulation, and/or Office of Management
and Budget Circular A-87. In regards to the reimbursement to
the Grant for the improper personnel expenses, the Hospital
needs to ensure that it uses non-Federal funds to complete the
reimbursement.
Recommendations We recommend that the Director of the Columbus Multifamily
Hub, Ohio State Office, assure that the Alliance Community
Hospital:
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Finding 1
1A. Provides documentation to support the $5,490 in
unsupported salary and fringe benefits expense for the
Wellness Services’ former Program Assistant. If
documentation cannot be provided, the Hospital should
reimburse its Special Purpose Grant OH12-SPG-517
$5,490 from non-Federal funds.
1B. Reimburses its Special Purpose Grant OH12-SPG-517
$93,948 ($6,065 for the former and the current
Directors of Wellness Services and $87,883 for the
former Vice President of Strategic Management) from
non-Federal funds for the salaries and fringe benefits
paid which were not in accordance with the Special
Purpose Grant Agreement, Office of Management and
Budget Circular A-87, and/or HUD’s regulation.
1C. Establishes procedures and controls to follow the
Special Purpose Grant Agreement, HUD’s regulation,
and Office of Management and Budget Circular A-87
regarding the use of Special Purpose Grant funds.
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Finding 1
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Finding 2
The Hospital Did Not Ensure That $21,035 In
Program Income Supported The Grant’s
Activities
The Alliance Community Hospital did not follow Special Purpose Grant Agreement OH12-SPG-517
and HUD’s regulation to ensure that income directly generated by the Grant was used to support other
Grant activities. The Hospital provided health care services to businesses participating in its Corporate
Health Alliance activity that was funded by the Special Purpose Grant. Between January 1997 and
January 1998, the Hospital received $21,035 in program income from the businesses that was not used
to support the Grant. The Hospital lacked sufficient procedures and controls over the Special Purpose
Grant to ensure that program income directly generated by the Grant supported other Grant activities.
As a result, fewer funds were available to support the Grant’s activities.
Paragraph I of Special Purpose Grant Agreement OH12-SPG-
Federal Requirements 517, between HUD and the Alliance Community Hospital,
required the Hospital to follow other applicable regulations such
as 24 CFR Part 84, Grants and Agreements with Institutions of
Higher Education, Hospitals, and other Non-Profit
Organizations.
24 CFR Part 84.2 defines program income as gross income
earned by the recipient that is directly generated by a supported
activity or earned as a result of the award. Program income
includes income from fees for services performed.
24 CFR Part 84.24(b) states in part that program income
earned during the project period be retained by the recipient
and, in accordance with HUD’s regulations or the terms and
conditions of the award, be used in one or more of the following
ways: added to funds committed to the project by HUD and
used to further eligible project or program objectives; and/or
deducted from the total project or program allowable cost in
determining the net allowable costs on which the Federal share
of costs is based.
Contrary to the Special Purpose Grant Agreement and HUD’s
The Hospital Did Not regulation, the Alliance Community Hospital did not ensure that
Ensure That Program $21,035 in program income directly generated from the Special
Income Supported The Purpose Grant was used to support other Grant activities. The
Grant’s Activities
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Finding 2
Hospital provided health care services to businesses
participating in the Corporate Health Alliance supported with
Special Purpose Grant funds. The Hospital billed the
businesses for the services and received $25,056 in payment.
However, the Hospital only included $4,021 in program income
for the further benefit of the Grant’s activities.
The Hospital did not use the $21,035 ($25,056 less $4,021) in
program income to support the Special Purpose Grant’s
activities due to a change in an accounting procedure.
According to a Staff Accountant for the Hospital, the program
income was initially credited back to the Grant. In January
1997, she said the procedure was changed and the Grant’s
income was credited to a miscellaneous income account. The
Staff Accountant said she did not agree with the change at the
time it was made, but could not remember who made the
change or why the change was made. The program income
was ultimately deposited into the Hospital’s operating account
and used to pay non-Grant expenses. As a result, fewer funds
were available to support the Grant’s activities.
Auditee Comments [Excerpts paraphrased from the Hospital’s comments on our
draft finding follow. Appendix B, page 30, contains the
complete text of the comments for this finding.]
The Hospital agrees that the revenue should have been offset to
the Special Purpose Grant. To ensure that HUD’s regulation is
followed, all personnel responsible for Grant accounting will
become familiar with the regulation and any other that relate to
Grant distribution. The $21,035 will be reimbursed to the
Special Purpose Grant OH12-SPG-517.
OIG Evaluation Of The actions proposed by the Hospital, if fully implemented,
Auditee Comments should ensure that program income generated by the Grant
activities is accounted for properly and used in accordance with
HUD’s regulation. In regards to the reimbursement to the
Grant for the improper use of program income, the Hospital
needs to ensure that it uses non-Federal funds to complete the
reimbursement.
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Finding 2
Recommendations We recommend that the Director of the Columbus Multifamily
Hub, Ohio State Office, assure that the Alliance Community
Hospital:
2A. Reimburses its Special Purpose Grant (OH12-SPG-
517) $21,035 from non-Federal funds for the use of the
program income that did not support the Grant’s
activities as required by the Special Purpose Grant
Agreement and HUD‘s regulation.
2B. Establishes sufficient procedures and controls to ensure
that it follows the Special Purpose Grant Agreement
and HUD’s regulation regarding the use of program
income directly generated by the Special Purpose
Grant.
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Finding 2
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Finding 3
The Hospital Did Not Charge For $10,989 In
Grant Services
Contrary to the Special Purpose Grant Agreement OH12-SPG-517 and Office of Management and
Budget Circular A-87, the Alliance Community Hospital failed to use sound management principles
when it did not charge itself for Grant services provided to its employees. The Hospital provided
$10,989 in health care services to its employees and members of the Hospital’s Wellness Center for
Women that participated in the Corporate Health Alliance activity funded by the Special Purpose Grant.
However, the Hospital did not charge for the services as was its usual practice. The current Director
and Coordinator of the Hospital’s Wellness Services, who administered the Grant, said they never
discussed billing the Hospital for the services. As a result, the Hospital did not administer the Special
Purpose Grant efficiently and effectively, and fewer funds were available to support the Grant’s
activities.
Article I, paragraph E of the Special Purpose Grant Agreement
Federal Requirements OH12-SPG-517, between HUD and the Alliance Community
Hospital, required the Hospital to follow Office of Management
and Budget Circular A-87, Cost Principles for State, Local,
and Indian Tribal Governments.
Office of Management and Budget Circular A-87, Attachment
A, paragraph A(2)(a)(1), says grant recipients are responsible
for the efficient and effective administration of Federal awards
through the application of sound management practices.
The Hospital used Special Purpose Grant funds to provide
The Hospital Did Not $10,989 in health care services to its employees and members
Charge For Grant Services of the Hospital’s Wellness Center for Women. The employees
Provided and members were participants of the Corporate Health
Alliance activity that was supported by the Grant. While the
Hospital was permitted to use Grant funds to provide the
services, the Hospital did not charge for the services as it did to
all the other Health Alliance participants.
Office of Management and Budget Circular A-87 required the
Hospital to administer the Special Purpose Grant in an efficient
and effective manner using sound management practices. Since
the Hospital was a member of the Corporate Health Alliance
activity, it should have charged for the services and billed the
Hospital for the health care services provided with Grant funds.
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Finding 3
The Hospital lacked controls over the Special Purpose Grant to
ensure that all participants of the Corporate Health Alliance
were charged for services provided with Grant funds. The
current Director and Coordinator of the Hospital’s Wellness
Services, who administered the Grant, said they never
discussed billing the Hospital for the services. They said billing
the Hospital did not make sense because the Grant funds were
received by the Hospital. According to the Director and
Coordinator, they did not consider that the Grant funds were
not Hospital funds. As a result, the Hospital did not administer
the Special Purpose Grant efficiently and effectively, and fewer
funds were available to support the Grant’s activities.
Auditee Comments [Excerpts paraphrased from the Hospital’s comments on our
draft finding follow. Appendix B, page 30, contains the
complete text of the comments for this finding.]
It was the Hospital’s intent to apply sound management
practices in all Grant transactions. For this specific instance, it
was not common practice to charge our facility for services
performed within.
OIG Evaluation Of We believe that the Hospital should reimburse its Special
Auditee Comments Purpose Grant $10,989 from non-Federal funds for failing to
charge for the health care services provided to the Hospital’s
employees and members of its Wellness Center. The Hospital
also needs to establish controls to ensure that it follows the
Special Purpose Grant Agreement and Office of Management
and Budget Circular A-87 regarding the efficient and effective
administration of Grant funds through the use of sound
management principles.
Recommendations We recommend that the Director of the Columbus Multifamily
Hub, Ohio State Office, assure that the Alliance Community
Hospital:
3A. Reimburses its Special Purpose Grant OH12-SPG-517
$10,989 from non-Federal funds for failing to charge
for the health care services provided to the Hospital’s
employees and members of its Wellness Center for
Women.
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Finding 3
3B. Establishes controls to ensure that it follows the Special
Purpose Grant Agreement and Office of Management
and Budget Circular A-87 regarding the efficient and
effective administration of Grant funds through the use
of sound management principles.
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Finding 3
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Finding 4
The Hospital’s Use Of Special Purpose Grant
Funds Did Not Support Its Grant Activities
Contrary to the Special Purpose Grant Agreement OH12-SPG-517 and Office of Management and
Budget Circular A-87, the Alliance Community Hospital used $8,926 in Grant funds for: public relations
items that did not specifically promote its Grant activities, and training and travel expenses for individuals
that were not employed by the Hospital. The Hospital’s former Vice President of Strategic
Management said he was not aware that the Special Purpose Grant Agreement required the Hospital to
follow Office of Management and Budget Circular A-87. As a result, HUD funds were not efficiently
and effectively used.
Article I, paragraph E, of the Special Purpose Grant Agreement
Federal Requirements OH12-SPG-517, between HUD and the Alliance Community
Hospital, required the Hospital to follow Office of Management
and Budget Circular A-87, Cost Principles for State, Local,
and Indian Tribal Governments.
Office of Management and Budget Circular A-87, Attachment
A, paragraph E(1), states in part that direct costs are those
identified specifically with a particular final cost objective.
Paragraph E(2)(b) says typical direct costs chargeable to
Federal awards are the cost of materials acquired, consumed,
or expended specifically for the purpose of those awards.
Attachment B, paragraph 2(b) of the Circular, states in part that
the term “public relations” includes community relations and
means those activities dedicated to maintaining or promoting
understanding and favorable relations with the community, the
public at large, or any segment of the public. Paragraph 2(d)(1)
says public relations costs are allowable when specifically
required by the Federal award and then only as a direct cost.
Attachment B, paragraph 41(a), of Office of Management and
Budget Circular A-87 permits the use of Federal funds for
travel by a recipient’s employees on official business.
Paragraph 40 of Attachment B states that only the cost of
employee training of the Federal award recipient is allowable.
The Hospital used $8,522 in Special Purpose Grant funds for
The Hospital Purchased public relations items that did not specifically promote its Grant
Items To Promote Itself activities. The items included promotional pens, pencils,
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Finding 4
litterbags, and stadium cups that contained the Hospital’s
insignia. Contrary to Office of Management and Budget
Circular A-87, the Hospital did not ensure that the public
relations items specifically promoted the Grant activities. The
items promoted only the Hospital.
The Hospital used $254 in Special Purpose Grant funds to
The Use of Grant Funds purchase airline tickets for two individuals to attend an
Did Not Support The Grant informational meeting in Indianapolis, Indiana. The meeting was
Activities held with a supplier to the Hospital’s Corporate Health Alliance
program funded with Grant funds. However, the two
individuals were not employees of the Hospital. The Hospital
was not permitted to use Grant funds to pay for the two
individuals’ airline tickets according to Office of Management
and Budget Circular A-87.
The Hospital also used $150 in Special Purpose Grant funds to
pay the training expenses for two individuals that were not
employees of the Hospital. Office of Management and Budget
Circular A-87 prohibited the Hospital from using Grant funds to
pay for the non-employees’ training expenses. The training was
provided to an Industrial Nurse of an area business and the
Director of Human Resources for a local college to attend a
one-day wellness conference.
The Hospital’s former Vice President of Strategic Management
said he was not aware that the Special Purpose Grant
Agreement required the Hospital to follow Office of
Management and Budget Circular A-87. He also said he was
not aware that Circular A-87 did not permit Federal funds to be
used to pay for public relations items that did not specifically
promote the Federal award or to pay expenses of individuals
that were not employees of the Hospital. As a result, HUD
funds were not effectively and efficiently used.
Auditee Comments [Excerpts paraphrased from the Hospital’s comments on our
draft finding follow. Appendix B, pages 31 and 32, contains
the complete text of the comments for this finding.]
The Hospital agrees that Grant funds were expended for non-
Hospital employee training and travel, which did not follow
Office of Management and Budget Circular A-87. The $404
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Finding 4
relating to those costs will be reimbursed to the Special Purpose
Grant OH12-SPG-517.
To ensure that the Hospital follows the Special Purpose Grant
Agreement and Office of Management and Budget Circular A-
87, a procedure will be initiated where personnel responsible
for administering Grant funds will be required to become
familiar with Circular A-87 and any other Federal regulations
relating to the distribution of Grant monies. Subsequent to the
awarding of the Special Purpose Grant OH12-SPG-517, a
Director of Compliance was appointed. This individual has the
necessary credentials to assist personnel responsible for Grant
monitoring.
In regards to the $8,522 in public relation items, the Hospital
contends that when originally purchased a portion of these items
were solely intended for Special Purpose Grant use. It seems a
portion of this inventory was inadvertently utilized for other than
Grant activities. The $8,522 will be reimbursed to the Special
Purpose Grant OH12-SPG-517.
The Hospital believes that it implemented procedures to
safeguard the effective and efficient use of HUD funds for the
future. As in the past, the Hospital appreciates the ability to
utilize HUD Grant funds to provide quality medical services in
its community.
OIG Evaluation Of The actions planned by the Hospital, if fully implemented,
Auditee Comments should ensure that Special Purpose Grant funds are used in
accordance with the Grant Agreement and Office of
Management and Budget Circular A-87. In regards to the
reimbursement to the Grant for the improper use of Grant funds,
the Hospital needs to ensure that it uses non-Federal funds to
complete the reimbursement.
Recommendation We recommend that the Director of the Columbus Multifamily
Hub, Ohio State Office, assure that the Alliance Community
Hospital:
4A. Reimburses its Special Purpose Grant OH12-SPG-517
$8,926 ($8,522 for the public relations items, $254 for
the airline tickets, and $150 for the training expenses)
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Finding 4
from non-Federal funds for the use of Grant funds
which was not in accordance with the Grant Agreement
and Office of Management and Budget Circular A-87.
4B. Establishes procedures and controls to ensure that it
follows the Special Purpose Grant Agreement and
Office of Management and Budget Circular A-87
regarding the use of Grant funds.
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Management Controls
In planning and performing our audit, we considered the management controls of the Alliance
Community Hospital in order to determine our auditing procedures, not to provide assurance on the
controls. Management controls include the plan of the organization, methods, and procedures adopted
by management to ensure that its goals are met. Management controls include the processes for
planning, organizing, directing, and controlling program operations. They include the systems for
measuring, reporting, and monitoring program performance.
We determined the following management controls were
Relevant Management relevant to our audit objectives:
Controls
• Program Operations - Policies and procedures that
management has implemented to reasonably ensure that a
program meets its objectives.
• Validity and Reliability of Data - Policies and procedures
that management has implemented to reasonably ensure that
valid and reliable data are obtained, maintained, and fairly
disclosed in reports.
• Compliance with Laws and Regulations - Policies and
procedures that management has implemented to
reasonably ensure that resource use is consistent with laws
and regulations.
• Safeguarding Resources - Policies and procedures that
management has implemented to reasonably ensure that
resources are safeguarded against waste, loss, and misuse.
We assessed all of the relevant controls identified above.
It is a significant weakness if management controls do not
provide reasonable assurance that the process for planning,
organizing, directing, and controlling program operations will
meet an organization’s objectives.
Based on our review, we believe the following items are
Significant Weaknesses significant weaknesses:
• Program Operations.
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Management Controls
The Hospital was not operated according to program
requirements. Specifically, the Hospital: improperly used
$6,065 in Special Purpose Grant funds (OH12-SPG-517) to
pay part of two employees’ salaries and fringe benefits for time
they spent working on non-Grant activities; used $5,490 in
Grant funds to pay an employee’s salary and fringe benefits
without supporting documentation; did not maintain periodic
certifications that the employee worked solely on Grant
activities, or personnel activity reports to support the
employee’s time spent on the Grant and non-Grant activities;
used $87,883 in Grant funds to pay the Vice President of
Strategic Management’s salary and fringe benefits that were not
permitted by the Grant Agreement; received $21,035 in
program income from businesses participating in its Corporate
Health Alliance activity funded by the Grant but the income was
not used to support the Grant; failed to use sound management
principles when it did not charge itself for $10,989 in Grant
services provided to its employees; and used $8,926 in Grant
funds for public relations items that did not specifically promote
its Grant activities, and training and travel expenses for
individuals that were not employed by the Hospital (see
Findings 1, 2, 3, and 4).
· Compliance with Laws and Regulations
The Hospital did not follow HUD’s regulations and/or Office of
Management and Budget Circular A-87 regarding personnel
expenses, program income, sound management practices,
public relations expenses, and training and travel costs (see
Findings 1, 2, 3, and 4).
· Safeguarding Resources
The Hospital improperly used: $6,065 in Special Purpose Grant
funds (OH12-SPG-517) to pay part of two employees’ salaries
and fringe benefits for time they spent working on non-Grant
activities; $5,490 in Grant funds to pay an employee’s salary
and fringe benefits without supporting documentation; $87,883
in Grant funds to pay the Vice President of Strategic
Management’s salary and fringe benefits that were not
permitted by the Grant Agreement; and $8,926 in Grant funds
for public relations items that did not specifically promote its
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Management Controls
Grant activities, and training and travel expenses for individuals
that were not employed by the Hospital. (see Findings 1 and 4).
The Hospital also received $21,035 in program income from
businesses participating in its Corporate Health Alliance activity
funded by the Grant but the income was not used to support the
Grant, and failed to use sound management principles when it
did not charge itself for $10,989 in Grant services provided to
its employees (see Findings 2 and 3).
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Management Controls
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Follow Up On Prior Audits
This is the first audit of the Alliance Community Hospital’s Special Purpose Grants (OH12-SPG-32,
OH12-SPG-509, and OH12-SPG-517) by HUD’s Office of Inspector General. The latest single audit
report for the Hospital covered the fiscal year ended December 31, 1997. The report did not contain
any findings.
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Appendix A
Schedule Of Questioned Costs
Recommendation Type of Questioned Costs
Number Ineligible 1/ Unsupported 2/
1A $5,490
1B $ 93,948
2A 21,035
3A 10,989
4A 8,926
Total $134,898 $5,490
1/ Ineligible costs are costs charged to a HUD-financed or insured program or activity that the
auditor believes are not allowable by law, contract, or Federal, State, or local policies or
regulations.
2/ Unsupported costs are costs charged to a HUD-financed or insured program or activity and
eligibility cannot be determined at the time of the audit. The costs are not supported by
adequate documentation or there is a need for a legal or administrative determination on the
eligibility of the cost. Unsupported costs require a future decision by HUD program
officials. This decision, in addition to obtaining supporting documentation, might involve a
legal interpretation or clarification or Departmental policies and procedures.
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Appendix A
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Appendix B
Auditee Comments
March 2, 2001
Mr. Heath Wolfe
Assistant Dist. Inspector General
For Audit, Midwest
HUD, Ofc of Inst Gen for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 W. Jackson Blvd., Suite 2646
Chicago, IL 60604-3507
Dear Mr. Wolfe:
In response to the draft proposal “The Hospital Improperly Used Grant Funds to Pay Personnel
Expenses.” Alliance Community Hospital does agree that periodic certifications and appropriate time
studies to support the Employee’s time spent of Grant Activities were not maintained.
The dollar amounts of $6,065, $5,490 and $87,883 will be reimbursed directly to our Special Purpose
Grant funds, per your recommendations.
For subsequent periods, time studies/periodic certifications will be required for all personnel related to
Grant Activities. These support documents will be completed on a quarterly basis for two weeks each
quarter.
As with other findings I believe the addition of a Compliance Officer along with other procedures will
safeguard the proper use of Grant funds.
If you should have any questions, please contact me at 330-829-4344.
Sincerely
/signed/
Joan Platzer
CFO
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Appendix B
February 23, 2001
Mr. Heath Wolfe
Assistant Dist. Inspector General
For Audit, Midwest
HUD, Ofc of Inst Gen for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 W. Jackson Blvd., Suite 2646
Chicago, IL 60604-3507
Dear Mr. Wolfe:
In response to finding “The Hospital Did Not Ensure That $21,035 In Program Income Supported The
Grant’s Activities,” Alliance Community Hospital does agree that this revenue should have been offset
to the Special Purpose Grant.
To ensure that this regulation is followed in further periods all personnel responsible for grant accounting
will become familiar with this rule and any other that relate to Grant Distribution. The $21,035 will be
reimbursed to our Special Purpose Grant OH12-SPG-517 per your recommendation.
In response to finding “The Hospital Did Not Charge For $10,989 In Grant Services.” It is felt that it
was Alliance Community Hospital’s intent to apply sound management practices in all grant transactions.
For this specific instance it was not common practice to charge our facility for services performed
within.
If you should have any questions, please contact me at 330-829-4344.
Sincerely
/signed/
Joan Platzer
CFO
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Appendix B
February 13, 2001
Mr. Heath Wolfe
Assistant District Inspector General
For Audit, Midwest
U.S. Dept. of Housing & Urban Development
Office of Inspector General for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 W. Jackson Blvd., Suite 2646
Chicago, IL 60604-3507
Dear Mr. Wolfe:
In response to the first draft audit findings at the Office of the Inspector General for Audit, HUD,
Alliance Community Hospital does agree that Grant funds were expended for non-hospital employee
training and travel, which does not follow Budget Circular A-87. The $404.00 relating to those costs
will be reimbursed to our Special Purpose Grant OH12-SPG-517.
To ensure that Alliance Community Hospital follows the Special Purpose Grant Agreement and Office
of Management and Budget Circular A-87, a procedure will be initiated where personnel responsible
for administering Grant funds will be required to become familiar with Budget Circular A-87 and any
other Federal regulations relating to the distribution of Grant monies. Also, subsequent to the awarding
of this Grant a Director of Compliance was appointed. This individual does have the necessary
credentials to assist personnel responsible for Grant monitoring.
In response to the finding that the Hospital used $8,522.00 in Grant funds for public relation items that
did not specifically promote its Grant activities, Alliance Community Hospital contends that, when
originally purchased, a portion of these items were solely intended for Special Purpose Grant use. It
seems a portion of this inventory was inadvertently utilized for other than Grant activities. The
$8,522.00 will be reimbursed to the Special Purpose Grant OH12-SPG-517. As mentioned above the
same procedures and controls will be put in place to ensure compliance with this Grant.
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Appendix B
I believe that we have implemented procedures to safeguard the effective and efficient use of HUD
funds in the future. As in the past, we appreciate the ability to utilize HUD Grant funds to provide
quality medical services in our community.
Sincerely,
/signed/
Joan Platzer
Chief Financial Officer
JP:cj
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Appendix C
Distribution
Acting Secretary's Representative, Midwest (2)
Senior Community Builder/State Coordinator, Ohio State Office
Senior Community Builder/Coordinator, Cleveland Area Office
Director of Columbus Multifamily Hub, Ohio State Office (2)
Director of Cleveland Multifamily Program Center, Cleveland Area Office
Secretary, S (Room 10000)
Chief of Staff, S (Room 10000)
Acting Assistant Secretary for Administration, A (Room 10110)
Deputy Assistant Secretary for Administrative Services, Office of the Executive
Secretariat, AX (Room 10139)
Acting Assistant Secretary for Congressional and Intergovernmental Relations, J (Room
10120)
Director of Departmental Equal Employment Opportunity, U (Room 2112)
Senior Advisor to the Secretary, Office of Public Affairs, W (Room 10132)
Deputy Chief of Staff for Policy and Program, S (Room 10226)
Deputy Chief of Staff for Intergovernmental Affairs, S (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
General Counsel, C (Room 10214)
Deputy General Counsel for Housing, Finance, and Operations, CA (Room 10240)
Assistant General Counsel, Midwest
Assistant Secretary for Housing-Federal Housing Commissioner, H (Room 9100)
General Deputy Assistant Secretary for Housing-Deputy Federal Housing Commissioner, H
(Room 9100)
Assistant Secretary for Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Executive Vice President of Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Acting Deputy Assistant Secretary for Multifamily Housing Programs, HT (Room 9100)
Deputy Assistant CFO for Financial Management, FM (Room 2206)
Audit Liaison Officer for Multifamily Housing, HQCGT (Room 3136)
Chief Information Officer, Q (Room 8206)
Director of Departmental Operations and Coordination, I (Room 2124)
Acting Chief Financial Officer, F (Room 2202)
Deputy Chief Financial Officer, F (Room 2202)
Director of Audit Coordination/Departmental Audit Liaison Officer, FMA (Room 2206)
Director of Risk Management, FMR (Room 2214)
CFO Audit Liaison Officer, FMA (Room 2206)
Audit Liaison Officer, 3AFI (2)
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Acting Director of Enforcement Center, V (200 Portals Building)
Acting Director of Real Estate Assessment Center, X (1280 Maryland Avenue, SW,
Suite 800)
Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
Acting Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Acquisitions Librarian, Library, AS (Room 8141)
Staff Director, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B 373
Rayburn House Office Building, Washington DC 20515
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340
Dirksen Senate Office Building, United States Senate, Washington DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
706 Hart Senate Office Building, United States Senate, Washington DC 20510
Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
Building, United States House of Representatives, Washington DC 20515
Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204 Rayburn
Building, United States House of Representatives, Washington DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O'Neil
House Office Building, Washington DC 20515
Associated Director of Resources, Community, and Economic Development Division,
United States General Accounting Office, 441 G Street N.W., Room 2T23, Washington
DC 20548 (Attention: Stanley Czerwinski)
Steve Redburn, Chief of Housing Branch, Office of Management and Budget, 725 17th
Street, N.W., Room 9226, New Executive Office Building, Washington DC 20503
Chief Executive Officer, Alliance Community Hospital
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Alliance Community Hospital, Special Purpose Grants, Alliance, Ohio
Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-05-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)